Debt

Senior Unsecured Revolving Credit Facility

On October 16, 2014, the Company amended and restated the credit agreement that governs the Company's senior unsecured revolving credit facility and the Company's unsecured term loan facility to increase the aggregate borrowing capacity to $600.0 million. The Company's $600.0 million credit facility provides for a $300.0 million unsecured revolving credit facility and a $300.0 million unsecured term loan. The revolving credit facility matures in January 2019 with options to extend the maturity date to January 2020. The unsecured term loan facility matures in January 2020. The Company has the ability to increase the aggregate borrowing capacity under the credit agreement to up to $1.0 billion, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus 1.55% to 2.30%, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.20% or 0.30% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a maximum percentage of secured debt to total asset value. As of March 31, 2015 and December 31, 2014, the Company had $100.0 million and $50.0 million, respectively, in outstanding borrowings under the revolving credit facility. As of March 31, 2015, the Company was in compliance with the credit agreement debt covenants. For the three months ended March 31, 2015 and March 31, 2014, the Company incurred unused commitment fees of $0.2 million and $0.2 million, respectively.

Unsecured Term Loan Facility

In connection with entering into the amended and restated credit agreement, the prior notes evidencing an existing $100.0 million term loan were canceled and a new note evidencing $100.0 million term loan under the larger facility was executed. On December 17, 2014, the Company drew the remaining $200.0 million available on the unsecured term loan facility provided for under its amended senior credit agreement (together with the $100.0 million term loan, the “Term Loan”). As of March 31, 2015 and December 31, 2014, the Company had $300.0 million in outstanding borrowings under the unsecured term loan facility. The unsecured term loan facility matures in January 2020. Borrowings under the unsecured term loan facility bear interest at a variable LIBOR plus 1.50% to 2.25%, depending on the Company's leverage ratio. The Company entered into interest rate swaps to effectively fix the LIBOR rate (see “Derivative and Hedging Activities” below).

Derivative and Hedging Activities

The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. Unrealized gains and losses on the effective portion of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense.

Prior to amending and restating the credit facility agreement in October 2014, the Company had entered into interest rate swap agreements with an aggregate notional amount of $100.0 million to hedge the LIBOR rate on its borrowing under the term loan facility through July 13, 2017. Upon amending and restating the credit agreement and drawing down the additional $200.0 million under the term loan facility, the Company entered into additional swap agreements to hedge the full $300.0 million, and, as a result, the Term Loan had a weighted-average effective interest rate of 2.93% through July 13, 2017 and a weighted-average effective interest rate of 3.51% from July 13, 2017 through January 15, 2020, based on the Company’s leverage ratio at March 31, 2015.

The Company records all derivative instruments at fair value in the consolidated balance sheets. Fair values of interest rate swaps are determined using the standard market methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. Variable interest rates used in the calculation of projected receipts and payments on the swaps are based on an expectation of future interest rates derived from observable market interest rate curves (Overnight Index Swap curves) and volatilities (level 2 inputs). Derivatives expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions.

As of March 31, 2015, the Company's derivative instruments are in both asset and liability positions, with aggregate asset and liability fair values of $0.1 million and $4.6 million, respectively, in the accompanying consolidated balance sheets. For the three months ended March 31, 2015, there was $4.2 million in unrealized loss recorded in accumulated other comprehensive income. During the three months ended March 31, 2015 and 2014, the Company reclassified $0.8 million and $0.1 million, respectively, from accumulated other comprehensive income (loss) to interest expense. The Company expects approximately $3.6 million will be reclassified from accumulated other comprehensive income to net income (loss) in the next 12 months.

Mortgage Debt

Each of the Company’s mortgage loans is secured by a first mortgage lien or by leasehold interests under the ground lease on the underlying property. The mortgages are non-recourse to the Company except for customary carve-outs such as fraud or misapplication of funds.

On March 5, 2015, the Company repaid the mortgage loans totaling $50.7 million on The Nines, a Luxury Collection Hotel, Portland.

Debt Summary

Debt as of March 31, 2015 and December 31, 2014 consisted of the following (dollars in thousands):



			Balance Outstanding as of
	Interest Rate	Maturity Date	March 31, 2015		December 31, 2014
Senior unsecured revolving credit facility	Floating ⁽¹⁾	January 2019	$	100,000	$	50,000

Term loan	Floating⁽²⁾	January 2020	300,000		300,000

Mortgage loans
The Nines, a Luxury Collection Hotel, Portland ⁽³⁾	7.39%	March 2015	—		50,725
InterContinental Buckhead Atlanta	4.88%	January 2016	49,087		49,320
Skamania Lodge	5.44%	February 2016	29,220		29,308
DoubleTree by Hilton Bethesda-Washington DC	5.28%	February 2016	34,432		34,575
Embassy Suites San Diego Bay-Downtown	6.28%	June 2016	64,120		64,462
Hotel Modera	5.26%	July 2016	23,125		23,225
Monaco Washington DC	4.36%	February 2017	43,544		43,756
Argonaut Hotel	4.25%	March 2017	43,708		44,006
Sofitel Philadelphia	3.90%	June 2017	46,641		46,968
Hotel Palomar San Francisco	5.94%	September 2017	26,367		26,461
The Westin Gaslamp Quarter San Diego	3.69%	January 2020	76,624		77,155
Mortgage loans at stated value			436,868		489,961
Mortgage loan premiums ⁽⁴⁾			3,196		4,026
Total mortgage loans			$	440,064	$	493,987
Total debt			$	840,064	$	843,987

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⁽¹⁾Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate (as defined in the senior unsecured credit agreement) plus an applicable margin. The Company has two six-month extension options.

⁽²⁾Borrowings under the term loan facility bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin. The Company entered into interest rate swaps to effectively fix the interest rate for the Term Loan. At March 31, 2015, the Company had interest rate swaps with an aggregate notional amount of $300.0 million, and, as a result, the Term Loan had a weighted-average effective interest rate of 2.93% through July 13, 2017 and a weighted-average effective interest rate of 3.51% from July 13, 2017 through January 15, 2020, based on the Company’s leverage ratio at March 31, 2015.

⁽³⁾The interest rate of 7.39% represents a weighted-average interest rate of the three non-recourse mortgage loans assumed in conjunction with the acquisition of The Nines, a Luxury Collection Hotel, Portland.

⁽⁴⁾Loan premiums on assumed mortgages recorded in purchase accounting for the Hotel Palomar San Francisco, Embassy Suites San Diego Bay - Downtown, Hotel Modera, and The Nines, a Luxury Collection Hotel, Portland.

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity of the debt with similar credit terms and is classified within level 2 of the fair value hierarchy. The estimated fair value of the Company’s mortgage debt as of March 31, 2015 and December 31, 2014 was $447.8 million and $503.9 million, respectively.

The Company was in compliance with all debt covenants as of March 31, 2015.